BUS501: Strategic Management

3a. Explain the meaning of competitive advantage

• How do you define competitive advantage?
• What generic strategies revolve around larger markets?
• Which generic strategies revolve around narrow markets?

Competitive advantage is the attribute that allows a business to outperform its competitors within an industry, such as access to new technology or rare natural resources. Michael Porter, a professor at Harvard Business School, identified three strategies that businesses can use to tackle competition: overall cost leadership strategy means to be the low-cost provider when compared to competitors; differentiation strategy means to do something innovative that makes people willing to pay more for your product: and, focus strategy means to targets a very narrow market (this strategy can also be called the segmentation strategy). These strategies are summarized in this image.

To review, see Competitive Advantage, Generic Strategies for Competitive Advantage, and Porter's Competitive Strategies.

 

3b. Describe the factors that create competitive advantage

• What is the Delta Model?
• What are the two main ways companies create a competitive advantage?
• How do products along the value chain create a competitive advantage?
• What elements are added to products along each step of the value chain?

The Delta model addresses system lock in as a source of competitive advantage. This refers to barriers for competitors to compete for customers. In a best product advantage, the focus is on being the lowest-cost provider. In a total customer solution strategy, the organization redefines the customer experience. A company has two main ways to create a competitive advantage. First, they can reduce costs, such as production costs, and keep their revenues consistent. Second, they can keep costs constant while increasing revenues by providing more value to consumers – this is achieved through the idea of a value chain. A value chain charts the path by which products and services are created and sold to customers. In other words, as each step in the chain is completed, the product or service becomes more valuable than it was at the previous step. For example, a company that harvests lumber and makes it into boards creates value along the chain by making the tree usable in the form of boards for construction.

To review, see The Value Chain, Competitive Advantage, and The Delta Model.

 

3c. Apply Total Quality Management to strategic management principles as a best practice

• How does Total Quality Management relate to competitive advantage?
• What can organizations do to leverage Total Quality Management to gain a competitive advantage?
• How can employee involvement assist in creating a competitive advantage?

Total quality management (TQM) is the organization-wide management of quality, including facilities, equipment, labor, suppliers, customers, policies, and procedures. This concept promotes the view that quality improvement never ends, and it provides a strategic advantage to organizations. TQM has seven basic elements: a focus on customers, focus on continuous improvement, employee involvement, quality tools, product design, process management, and supplier quality.

To review, see Business Fundamentals.

Unit 3 Vocabulary 

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• best product advantage
• competitive advantage
• cost focus strategy
• cost leadership
• customer solution strategy
• differentiation focus
• differentiation strategy
• system lock in
• Total Quality Management (TQM)
• value chain